What's the Difference Between a Not-for-Profit and a B-Corps?

In the ESTEEM Program we speak of being a Masters with a Mission – a mission to benefit the common good not just celebrate individual success. As such we often speak about how businesses can incorporate – and how they can provide positive social impact for all. Below is a reflection on two strategies and how both can serve as a benefit to the community.

Entrepreneurs who start their own business must decide whether to incorporate as a for-profit corporation or a nonprofit. For-profits that want to focus on a triple bottom line – social and environmental as well as financial – can become B Certified Corporations and, in an increasing number of states, incorporated as B Corps. B is for Benefit.

The movement to broaden companies’ commitment from shareholders to a fuller range of stakeholders, including employees, the environment, and the broader community started less than a decade ago, says ESTEEM Director David Murphy, the former CEO of B Corp pioneer Better World Books. The goal is to harness the private for-profit sector, which accounts for more than two-thirds of the U.S. economy, to solve major problems.

“If we could unleash the private sector’s free enterprise to address some of these major issues, that’s the biggest part of the economy to do that,” Murphy says, adding that the public sector and nonprofits are much smaller and not growing as rapidly, especially because of the economic downturn and government budget cuts. “The B Corp movement is not anti-wealth. It’s not anti-capitalism. Its boards of directors operate with more than finances in mind.”

Because state law governs business incorporations and 50 state legislative movements would be time-consuming, leaders created the B Lab in Philadelphia and established a procedure so that corporations could become B Certified. Since then, more than 950 companies from 32 countries have joined the B community. Twenty states have added B Corp incorporation to their laws, and 16 more are considering such legislation.

B Certified corporations revise their articles of incorporation to include the stakeholder balance and subscribe to the B Corp way of reporting, with transparency on social impact and environmental activity as well as financial statements. They accept audits every other year on all of the issues, from employees’ wages to recycling volumes. Members pay a token percentage of their income to support the lab, which promotes a community of like-minded businesses and gains significant money-saving discounts for its members on purchases such as software.

Entrepreneurs who aim to provide a social benefit could take either the B Corp or non-profit approach, depending partly on how large and fast the company intends to grow. “Scale defines your capital structure,” Murphy says, adding that community-focused non-profits typically depend on individual donations to start and grants from foundations as they grow. “They don’t create wealth. They create impact, but not necessarily wealth.”

For-profits, including B Corps, find faster access to capital markets. “They’re interested in wealth creation the way you would be when you’re running a business and thinking about, for example, how you attract talent,” Murphy says. B Lab helped create the Global Impact Investment Rating System (GIIRS) that supports a growing impact investment movement. Investors are increasingly interested in socially- and environmentally-conscious companies.

As an entrepreneur devoted to doing good, not only doing well, he/she can choose between the non-profit approach and the for-profit B Corp approach to best fit the company’s aims and ambitions.